Gaining A Beachhead

For the uninitiated, Ruf and Tufs beauty lay its in the product concept. A typical kit consisted of the denim fabric, plus accessories like buttons, rivets, leather label, brass zipper and an instruction booklet for the tailor. All one needed to do was buy a tamper-proof pack of Ruf and Tuf and get the jeans stitched by a neighbourhood tailor according to ones specifications.

Today, Arvind has every reason to gloat over the success of Ruf and Tuf. If for a long time, jeans were a largely urban phenomenon, with its distinctly desi skew, Ruf and Tuf created a truly pan-Indian paradigm for jeans. Riding on the innovative concept, Arvind was able to muscle into the hitherto untapped smaller towns and rural centres.

Now if you thought that after having already sold an awesome 4.8 million kits so far, the dust would have settled once and for all, you are wrong. Thats because Arvind has just fired its next salvo, designed to take the Ruf and Tuf brand ahead.

Earlier last month, Arvind unveiled Ruf and Tuf in its new ready-to-wear avatar in the state of Maharashtra. On offer are two options light colours, namely blue, priced at Rs 299 and overdyed colours like black at Rs Rs 325. As the company prepares to extend the brand into Tamil Nadu this month, the projections are decidedly bullish. At the end of the financial year 1997-98, Arvind expects the contribution from the expanded Ruf and Tuf product line to rocket to Rs 165 crore.

To achieve that, Arvind has devised some startling innovations, which are designed to skilfully extend the concept forward and also manage its expanded portfolio. (The company declined to divulge any information, so The Strategist pieced together the tale of how it is maintaining the momentum of success from its own sources.)

The rationale

Whats forced Arvinds hand into launching a ready-to-wear jeans under the Ruf and Tuf umbrella? it is primarily meant to ward off any new entrants into the large potential market at the lower end of the price spectrum.

After Arvind laun-ched Newport at Rs 399, it went on to become the biggest jeans brand in the country. Its success attracted a host of competitors. Despite their higher price, brands like Killer (the brand hawks at Rs 499) were able to capitalise on Newports market development initiatives. Moreover, the margins on Newport were much too slim to warrant renewed marketing activity.

Now Ruf and Tuf ready-to-wear jeans flanking Newport at a lower price point will effectively neutralise the advances made by these brands at the lower-price segment. The reason? Back-of-the-envelope calculations show that the profit margins for a pair of jeans priced around Rs 400 is barely 5 to 8 per cent, compared to the usual 10-11 per cent for the middle- and top-end brands. The key: garner huge volumes and allow that to offset the low margins. Arvinds reasoning is that the introduction of another major entrant at a lower price point will invariably snatch much of the volume that would have gone to these brands. Faced with a squeeze on volumes, these brands might find that the business opportunity that presented itself, after the Newport launch, suddenly evaporating.

Then while marketing Ruf and Tuf ready-to-stitch, there was a more real problem that Arvind had to cope with. Every success spawns imitators and so it was with Ruf and Tuf. If there was any entry barrier for the organised sector players, it was the cost of the fabric. At Rs 84-87 per metre, Arvinds ex-mill price is a good Rs 5-6 per metre lower than the standard market price. (That is significant considering that the cost of fabric accounts for at least 30 per cent of total product cost.) Besides, the distribution and logistics was complex. Not to forget managing the key intermediary: tailors.

But if that were enough to sap the will of organised competition, it did nothing to stop enterprising local entrepreneurs from jumping onto the bandwagon.

For them this was a golden opportunity. All they had to do was supply fabric with cheap accessories and after that it was the tailor who would step in. The Ruf and Tuf product format was such that the consumer found it difficult to differentiate between Arvind and other lower-priced kits. As a ready-to-stitch kit was devoid of the most common generic benefit in jeans the fit it made the task of branding difficult. Moreover, since the value addition was being done by the tailor, consumers were not above switching. According to market sources, this was one of the main reasons Ruf and Tufs sales suddenly began slowing down from monthly sales of Rs 3 crore to Rs 1.8 crore early this year.

There was yet another issue at work. Arvind had held tailor conferences to educate them about the way jeans were stitched. Despite that, monitoring the

quality of stitch wasnt easy. In B-class cities, tailors are usually attached to the cloth shops and so it is easier to monitor the work that they are doing.

In the more smaller towns, it was more of a problem as the tailors functioned separately and it became difficultproviding the level of accessory support to him. The result: poor quality of thread resulting in weak stitches and hence, a badly finished product.

There was another clinching reason for Arvind to bring in a ready-to-wear offering. The post-launch consumer research on Ruf and Tuf also showed that many consumers went to retail outlets and wanted a similar ready-to-wear brand at affordable price points. In addition, Arvinds reasoning was that moving to the ready-to-wear segment would also increase the perceived value of the brand. Since research showed that the top-of-mind recall for the brand was very high, it was one more reason to move it one more step towards the ready-to-wear segment. So the first phase of launch took place on May 2 in Maharashtra. On June 10, this year the product is being launched in Tamil Nadu.

The task

Having taken the plunge with the launch, Arvind is well aware of the dangers of brand cannibalisation. In the current portfolio, it already has Newport at Rs 399 and the Ruf and Tuf pegged at Rs 195-250 (add Rs 100 as the tailoring charges). So how does it hope to differentiate its latest addition without taking away volumes from its existing brands?

Before Ruf and Tuf was launched, Arvind had never looked beyond covering the urban metros and the bigger townships. That left a huge vacuum at the lower end of the market. Now, Newport could not fill that gap by mass producing jeans at a low cost,

and at the same time substantially ramping up distribution width, without costs going out of line.

As Arvind saw it, jeans as a concept had been accepted in India. Consumers were happy with their experience with jeans. However, the problem was that usage was strongly skewed towards urban and upper class segments because reliable, branded jeans are available more in urban metro centres. Historically, garment manufacturers have tended to focus on the metros and neglected growing the jeans market in smaller towns.

Moreover, there were only a few nationally advertised jeans brands and these too were

expensive brands. Further, these brands tended to propagate an image of image of the jeans wearer to be urban, fashionable, English-speaking, and with it all. The marketing of jeans had been largely isolative rather than broad-based.

Yet the purchasing power was growing fast in the smaller towns and rural centres. So were aspirations as the small towner was exposed to TV and cable

communication and jeans. He too aspired to wear jeans himself. The size of this potential market:

over 25 million.

If the Ruf and Tuf ready-to-stitch offering was the first entry point to gradually upgrade the consumer from tailored trousers to a tailored jeans, now the ready-to-wear jeans will attempt to hasten the shift among consumers who are already amenable to the idea. Essentially, the ready-to-wear brand is being targeted at the same first-time wearer, typically a young customer between the age group of 15-24.

The biggest hitch is, of course, in getting the consumer to accept the fit offered by ready-made garments. So the company has gone ahead with a special comfort fit in the ready-to-wear segment. Essentially, the fit will be slightly loose since the consumer is more used to wearing normal trousers.

The risks of cannibalisation are minimal. For one, Newports advertising will continue to be distinctly English and upmarket. On the other hand, Ruf and Tufs communication will be in Hindi and local languages, given the fact that its consumer base responds to vernacular communication as opposed to English. To fit the aspirational role model of its target group, film star Akshay Kumar will continue to be the brand spokesman. As Arvind sees it, the two target groups are clearly segregated.

Yet in the 2 lakh plus population towns, the risks of some amount of cannibalisation between the two variants is not ruled out. Besides, the distribution strategy will play an important part. In addition, the ready-to-wear variant will be distributed to all 2 lakh plus towns and below. And almost simultaneously the ready-to-stitch kit will be pushed into towns of over 50,000 to offset any volume loss on the kit due to cannibalisation from the ready-to-wear variant.

On the other hand, Arvind has chosen to consolidate Newports status as the largest jeans brand in the country. To keep distribution costs in check, Newport was launched with a limited stock-keeping units (SKU) portfolio of 24, compared to the usual 120-150 SKUs that most other jeans brands offered. Now while the move helped harness distribution costs, repeat purchases tended to slow down. In a developing market, consumers tend to look for a variety of washes, fits and shapes, before they decide on their choice, reveals Chetan Shah, managing director, Pepe Clothing Ltd. Now Arvind has pushing ahead with newer colours to stimulate repeat sales. The target market: the metros and mini-metros.

The distribution structure

Arvinds biggest gambit is the new distribution model for the Ruf and Tuf ready-to-wear brand an industry first and modelled along the lines of a Coke and Pepsi bottling operation.

This is how the new structure will work. Arvind has identified key states for Ruf and Tufs

ready-to-wear variants. There are currently five such states: Maharashtra, Tamil Nadu, Andhra Pradesh, Madhya Pradesh and Delhi. In these markets, Arvind will appoint franchisees, who

will manufacture the brand. For example, in Maharashtra, the Arvind franchisee is Sharda Fashions in Ahmednagar.

Now the franchisee is expected to invest about Rs 1.25-1.5 crore to set up the machinery. Arvind, on its part, is going to contribute technical know-how and promotional support. The franchisee also get a right to appoint retailers and essentially chart out the distribution route for the entire state. The franchisee is also required to map out the routes for market coverage.

While franchisee picks up the raw material from Arvind on a mark-up of about 15-18 per cent, he gets to keep the retailer margin. The payback time for the franchisee is expected to be between three to four years. Arvind is also going to put some key personnel permanently with the franchisee to oversee the production process and also to advise them on day-to-day management.

The selection of these franchisees is being done on the basis of their experience of their experience in the textile business in that particular state. For example, Sharda Fashions has been in the business for the past century. Arvind is banking on the fact that experienced franchisees know the market and the channels very well. This will enable them to better access market information and quickly snuff out imitators and control competitors.

For Arvind, this masterstroke will, at one go, reduce the logistical complexity and bring down the cost of doing business. The company can then focus better on 50,000-plus population towns and use its expertise to set up distribution channels in those towns. In these towns, the company plans to take a leaf out of fast-moving consumer goods (FMCG) marketers and employ retailing vans to distribute ready-to-stitch kits to even ordinary retailers. These retailers are expected to stock a minimum number of SKUs. Rather than selectively distributing to a few cloth shops in these towns, the van route is reckoned to widen reach substantially because the halts have been carefully chosen, keeping in mind the volume of consumer traffic.

Of course, the distribution thrust towards ordinary retailers is not without its drawbacks. Says a retailing expert, In smaller cities consumers look for a multitude of colours even in jeans just as

they would do in ordinary trousers. This means that at an average the retailer will have to stock at least five to six SKUs to offer the colour choice. Replenishing the exact requirements

may become complicated and a costly affair as service cycles may be more.

But as long as the consumer remains in the Arvind fold that price would be worth paying. Says an market analyst, Even if Arvind makes only Rs 15-20 per unit on Ruf and Tuf it will still be advantageous. Over the longer time-frame its lower cost of production and the critical mass will bring in the profits.